The Pin Factory Blog

The government has been criticised for its new "idea" for universities, to allow rich students to buy places at university. Students will be able to pay the fees that foreign students pay in order to guarantee a place in the course they want. Isn’t this just a sop to the rich that will further harm social mobility? Well, yes and no. It will benefit rich students, but it will open a great many other doors as well.

We are living through a crisis in university education. Last year, 188,697 university applicants failed to get a place after clearing, an increase of around 40% on the year before. This kind of shortage is all too predictable – when you set a price ceiling for something, you should expect shortages. For an example of this, look at the 1973 oil crisis. The US and UK imposed price controls and experienced fuel queues and shortages; Japan and Germany allowed prices to rise and consumption dropped in reaction, with fuel going to the places it was most in demand. So it is with university places – there is more demand than supply, so many people will be left unsatisfied. While this is true of the sector in general, it’s also true for specific universities. Demand for Oxbridge and Russell Group universities is far higher than the supply of places.

The government’s proposals would allow some applicants to pay their own way – creating a place that would otherwise not have existed. This is the crucial point to remember. If a girl's parents pay the extra price for her to go to Oxford, nobody else is deprived of a place. And the place is only available if she has the grades that would qualify her for it anyway. Because the sector is operating under capacity (thanks to the fees price ceiling), paying full fees for a place will create an entirely new place. It’s a positive-sum game.

Some say this is unfair because it offers the rich more options than the poor. But to stop people from being able to pay for places just to bring them down to the level of the poor is completely backwards – we should be trying to see how we can raise the poor up to that level. Equality for its own sake shouldn’t be the objective; what we want is to improve people’s lives. So how could we do this? Quite simply: by making sure that student loans are available to everybody with the grades needed for these places, and allowing universities to raise their fees to reflect the supply and demand for places.

More places would be created and the places lottery would be done away with – if you want to do medicine at Oxford, you’d better be prepared to make the same sacrifices that your competitors are willing to make. The proposals announced today will only entrench priviledge if people continue to insist on artificial depressing place numbers through the fees cap.

The legendary international relations theorist Francis Fukuyama has turned his attention to the evolution of governments, and therefore to Hayek in his new book "The Origins of Political Order". In a piece for the New York Times, he defends Hayek's status as a great intellectual, but criticises his ideas.

Firstly, he points out that freedom can be threatened by the powerful. He argues that central government has sometimes defended the liberty of the weak from the coercion of the strong. However, while it may be true that government can defend the liberty of the weak, the concentration of power in an institution able to use force makes that institution more attractive to capture by the strong. After all, the strong have the greater means, so what is to stop them furthering their own aims at the expense of the weak?

Secondly, he argues that Hayek's 'slipperiest of slippery slope arguments' in "The Road to Serfdom" does not automatically occur. He cites historical examples showing that moves toward greater government interference have stalled. But I don't think Hayek would dispute this, as he himself worked to reverse the trend. "The Road to Serfdom" was a warning so that we could recognise statism and attempt to stop it, rather than a description demonstrating the futility of fighting for liberty.

Thirdly, Fukuyama claims that Hayek contradicts his own 'knowledge problem' by being so certain that governments will fail at planning on others' behalf. However, this is not the case. Hayek simply points out that governments are more likely to fail. Firstly, if people have imperfect knowledge about themselves, then other people are likely to have even less knowledge about those they try to govern. Secondly, government does not experiment in the same way as people do, as it uses force to prevent failure, forces people to choose the same things, and uses force to prevent people from opting out. The state may occasionally get things right, but its use of force makes this very unlikely.

Lastly, Fukuyama complains that state and society must be divided according to empirical adaptation rather than the 'strict abstract principle' of freedom. But then, who decides?

Anton Howes is Director of the Liberty League.

Are you celebrating Europe Day? No, me neither. I don’t know anybody who did, except for the poor sods in government buildings around Westminster. It does seem odd, a fortnight after the splendid sight of Union flags ringing Parliament Square to commemorate the Royal Wedding, to see the same flagpoles flying the flags of the EU’s member states. And there is a difference – people obviously wanted to see the Union flags flying during the Royal Wedding, but who wanted the flags flying for Europe Day?

Europe Day must be the most top-down celebration day we have. Unlike the Royal Wedding, St George’s Day or even St Patrick’s Day, all of which are bottom-up celebrations that people would celebrate with or without any state endorsement, Europe Day is something that we’ve been told to commemorate. (Some will argue that the Royal Wedding is a state-sanctioned holiday, but it’s different to Europe Day in that people would have celebrated it even if there had been no state fanfare. It was spontaneous and bottom-up.)

I have no real objection to Europe Day, if people want to celebrate it. And, if enough people want to see something celebrated, I don’t mind if the government recognises that and flies the flag to mark the occasion. But my suspicion is that, in the case of Europe Day, few people would celebrate it if. Instead, I think it’s another brick in the wall of the EU’s efforts to manufacture a “European” identity. Other examples are the European “national anthem” (how can a non-nation have a “national” anthem?) and the European flag that must be flown outside government buildings in EU member states.

Supporters of the EU often claim that it’s a “post-national” body. Why, then, does the EU bother with the symbols of nationhood – flags, coins, anthems and holidays? This seems less like a “post-national” body than one trying to invent a new nation for itself. And this is a problem: like other “spontaneous orders”, nationality is hard to engineer from the top down without negative unforeseen consequences. See the failure of the Yugoslavian project for an example of this, as well as many post-colonial African states, like the Democratic Republic of the Congo whose problems are, in large part, consequences of successive government attempts to engineer ethnic identities there.

Thankfully, the EU’s failures in this regard will be more benign, but it should be clear that it is a bad idea for states to try to make a nation out of nothing. I’m not worried about bogeymen from Brussels hiding under my bed, but top-down planning of society is just as hubristic and short-sighted as top-down planning of the economy. 

There's speculation around the Westminster Village that, humiliated at the polls, the Liberal Democrat leader Nick Clegg will demand more from his coalition partner, the UK Prime Minister David Cameron. The argument is that LibDem voters don't like the Conservatives' domination of the coalition agenda, so more Lib Dem policies need to be adopted. (Conservative backbenchers, by contrast, express astonishment at the idea that a party which has just been so heavily defeated have the right to demand anything of the Tories, who actually picked up local council seats, despite being in a strong position since the last round of local elections.)

Still, in Nick Clegg has his way, one of the prices that is being talked about is abandonment of the NHS reforms that have been spearheaded by the Conservative Health Secretary Andrew Lansley. There is even talk of Clegg becoming the Health Secretary as well as Deputy Prime Minister. Paying either price would be a grave mistake.

Before the election, the Conservatives did a lot of serious work on the reform agenda, specifically in health and education. The model is similar: basically, let anyone (not just public-sector bodies) provide the service, let customers choose, and let the taxpayers' money follow those choices. An internal market. The Conservatives worked out that they had to introduce these reforms quickly – Education Secretary Michael Gove was out of the trap like a startled whippet – because it would take years to get them working and show results.

We have wasted 15 years in health and education reform. Under Mrs Thatcher, the Conservtives developed the internal market model (for which the ASI can claim some credit in designing), and started to put it into place. But too late. When Tony Blair took office, he had to pay debts to his left, and gave those briefs to left-wingers who unwound all the Tory reforms. Five years later, with billions wasted in trying to improve these monolithic state monopolies, Blair was visibly regretting that, and started trying to re-introduce the internal market, against resistance from his party and his Chancellor.

Internal markets are the right way to bring competition, choice, and innovation into health and education. The last thing we should do is to give up on it now because of some short-term political problem in a minority party. If we backtrack now, it will be 25 years we have lost.

Aside from the periodic review of 2009/10, the water sector has recently enjoyed a low profile. However, this relatively peaceful existence may change. First, England faces a challenging summer to maintain water supplies. Last March was one of the driest months on record, whilst April’s high temperatures saw minimal rain in many regions, especially in East Anglia and the South-East.

Of course, the remainder of May and June may produce regular cloudbursts – to the delight of gardeners if not to farmers. If not, expect far more hosepipe bans and further constraints on water use. However, the situation is very different from the sweltering summer of 1976 – the drought has not yet taken root and the water companies’ £85 billion of investment since privatisation in 1989 means they are now far better prepared.

Appallingly unprepared, though, over the Christmas period was Northern Ireland Water (NIW): its lack of investment in recent decades was amply demonstrated. As a priority, the long-running Northern Ireland water charging saga needs to be resolved. Subsequently, NIW should be privatised so that the necessary investment uplift can be undertaken.

Scottish Water, too, remains publicly-owned - and partly subsidised. Once the new administration is in place, Scottish Water should be transferred to the private sector, preferably with Scottish financial institutions playing a key financing role. Elsewhere in the sector, a White Paper is being drafted by Defra. It is unlikely to put forward radical proposals.

Aside from addressing the Walker Report on water charges, it will also analyse the Cave Report which advocated various initiatives to promote competition. In over 20 years, water competition in England and Wales has made minimal progress – several of the water companies prefer it that way. Ironically, in Scotland, there is more of an open market for water services.

Hopefully, it will rain, preferably at night-time. If not, some water companies are in for a long summer. 

Sir Bob Geldof and Lord Bono can take the day off from their quest to eliminate African poverty today. A new report by the African Development Bank (PDF) shows that the African middle class is growing at a unprecedented rate, with almost 35% of Africa's population now being considered middle-class – an increase of almost 10% over the last thirty years. Measurements of living conditions are up across the board: electricity consumption has almost tripled since 1985, as has the continent's petroleum consumption. Although certain states in Africa, such as Liberia, continue to suffer from abject poverty, things are on the whole looking up.

Have the efforts of Elton John, Sting, Paul McCartney and other celebs finally started to pay off? Well, probably not – the report is distinctly lacking in references to celebrity activism. Instead, it says that the growth of this middle-class is due to social-economic opportunities provided by the private sector. Indeed, economic growth and an embryonic entrepreneurial spirit has led to formerly unheard-of levels of prosperity for many Africans who, instead of subsisting beneath the poverty line, are increasingly buying fridges, cars and televisions.

Sir Bob might argue that these changes were initially brought about by the West's aid generosity. Apparently not, as the report again states that macroeconomic policy changes are to thank for this upturn. In contract, over the last fifty years Africa gained little from $500,000,000,000 worth of poorly-structured aid that only encouraged aid-dependency.

Overwhelmingly, Africa needs trade, not aid. Trade was one of the key factors in the economic prosperity of the western world, and it can do the same in Africa. The current situation, however, denies Africa vital trading opportunities. The CAP impoverishes Africa. By having huge barriers to Europe's agricultural produce market, and therefore denying Africa the ability to trade in what they have a comparative advantage in, the CAP is plainly a raw deal. (Not to mention the fact that the CAP also costs each UK household £398 annually (PDF).)

While serious challenges no doubt lay ahead for Africa, notably HIV and its potentially devastating demographic impact, the route to Africa's long-overdue development is free trade, not another evening of banal comedy sketches, regardless of their benevolent intent. The current situation benefits only a small number of over-subsidised farmers, to the detriment of everybody else.

In last week's UK elections, the pro-independence Scottish Nationalist Party took control of the Scottish Parliament, and campaigners for a new voting system, the Alternative Vote, were thoroughly routed in the public referendum on the issue.

It's now time for a referendum in Scotland. No, not on whether the country should go independent. But on the Mixed Member Proportional Representation voting system that is used there. After all, this system – and the PR system used in the Welsh Assembly too – were foisted on the public by the politicians. There were referendums on devolution, but not on the voting system that would be used to elect the new bodies.

When the first Scottish Parliament was chosen, it was clear that voters did not fully understand PR there, with its constituency elections and regional lists voting – though they may understand it better now. But the fact is that the whole complicated scheme was concocted by the politicians then in office to keep things pretty much as they were. (It didn't exactly work, as the rise of the SNP shows, but then most political schemes don't exactly work.)

Apart from tiny areas in central Edinburgh and Glasgow, every constituency in Scotland and every constituency in Wales, along with almost all in England, rejected AV in the referendum. One has to wonder whether the Scots and the Welsh, if actually asked what system they wanted for their own devolved governments, would chose the systems we have now. For my part, I don't much like constitutional changes, like the choice of voting system, being decided by the politicians already in power. Nor even by simple majorities in a referendum where only a minority of the electorate actually choose to vote. But the latter is definitely better than the former.

It's been a commonplace for months now, that rises in food prices, the bouncing around of oil, the general manner in which commodity markets are volatile, is all being driven by speculation.

You know, this idea that if people are playing with money to make a profit then they must be doing something wrong?

The current bugbear is that such speculation makes prices more volatile. As volatile food prices are certainly not a good thing for the poor, who spend so much of their incomes on food, thus speculation in such things, which causes volatility, is wrong and must be banned.

The only real problem with this line of thought is that there's no evidence at all that the speculation leads to the volatility. Indeed, in theory, speculation should lead to reduced volatility, as Adam Smith points out (start at para 40). Theory's all very well of course, but how does this work out in practice?

Yes, that's right, onions, where speculation through futures and options has been banned this past 50 years, are vastly more volatile in price than oil is, where everyone and their grandmother can speculate to their hearts' content.

If you think speculation causes price volatility, just have a look at what happens to price volatility when speculation is banned.

It's most certainly true that inequality is rising within the economically advanced countries:

The question is, does this matter?

Worth noting that it does seem to be a near global phenomenon, that in country inequality is rising near everywhere. This might lead us to think that there's a global cause: no, it's not Maggie thrashing the unions, not the UK's "over-reliance" on finance or any of those sorts of purely domestic things. It's something happening to everyone.

And what has been happening to everyone? That would be this globalisation thing perhaps?

So, let us assume that in country inequality does matter, that it's a problem, that globalisation is causing it and....well, does this mean that we should reverse globalisation to deal with this problem?

Personally, I think not, for look at what else is happening at the same time:

Growth rates among the poorest of the poor, those in sub-Saharan Africa, are trundling along at much higher rates than they have historically.

Now, I'm not about to try and prove, in a blog post, that both the rising in country inequality and the growth in Africa are entirely and wholly due to increased globalisation. But it's certainly possible to argue that case, and argue it convincingly.

But let us just assume that and move onto the much more interesting question: if it is true, is it worth it?

A question to which I would answer a resounding Yes.

We in the rich countries have rising inequality, meaning that while our poor are getting richer our rich are doing so faster: and we've also got the poorest, most destitute, parts of the world getting richer faster than even our own rich. Global poverty is falling, global inequality is falling, destitution is very definitely going out of style: what's not to like about this picture?

The gap between what type of car you might have is widening in the UK: elsewhere, tens of millions, hundreds of millions, are discovering the exciting feeling of being full of food on a regular basis. Yes, I'd say that was worth it and I find it incredibly difficult to think of a way in which anyone seriously concerned about either poverty or inequality could say that it isn't.

The standard consequentialist argument in favour of the welfare state essentially says that the harm caused to rich people by taxation is outweighed by the benefit to poor people from government services. That’s probably wrong, but for the sake of argument let’s say it’s not and concede the idea that governments should redistribute resources. The question that redistributionists have failed to answer satisfyingly is, to whom should the resources be distributed?

The redistributionist argument may seem defensible if we look at one country alone – taking from the rich in Britain to give to the poor in Britain sounds good to a lot of people. But why do we only look at the poor in Britain? Compared to, say, the poor in Peru, they don’t seem to be so badly-off. The redistributionist logic would imply that money should be given to the worst-off, wherever they are. So, why give money to the poor in Britain rather than the very poor in Peru?

A redistributionist might say that a government’s job is to look after its own citizens. That argument, frequently made, has no real ethical basis. Unless the redistributionist believes that the value of, say, a Mancunian’s welfare is of greater importance than a Peruvian’s welfare, there is no outcomes-based argument for favouring the Mancunian over the Peruvian. Taking the redistributionist premise that governments can improve outcomes by taking from the rich and giving to the poor, the only moral argument for spending tax money in Manchester rather than relatively-poorer Peru is based on implicit nationalism. How many redistributionists would admit to that? Yet it is the only logical justification for preferring a big welfare state in Britain to a lot of money being spent around the world.

Some would say that it would be politically impossible to implement this kind of redistributionism. Yes, it would, but that isn’t a convincing argument. Even the argument that overseas spending delivers less bang for the buck than domestic spending is highly dubious, and returns to the question of why redistribution supposedly works inside a country’s borders and not outside them.

This is a fundamental flaw in the redistributionist manifesto. The only intellectual justification for favouring people in Britain over people in Peru for government spending would be that British people are more deserving. This is implied by arguments for a welfare state. The libertarian alternative, on the other hand, doesn’t suffer from this implicit nationalism. The outcomes we argue for treat people as equals: Free markets benefit everybody, wherever they are. I’ll choose that kind of egalitarianism over the narrowly nationalistic redistributionist egalitarianism any day.